South Korea, a global hub for bitcoin trading, has previously said it wants to tax profits from trading in virtual currencies.

"The government has repeatedly warned that virtual currencies are not legal currency, that prices can fluctuate drastically and cause great losses," Thursday's statement read.

Bitcoin's value dropped soon after the announcement. The virtual currency plunged more than 10% to below $14,000 on Thursday morning in Asia, according to CoinDesk.com, and continued to fluctuate through the day.

Mati Greenspan, a Tel Aviv-based analyst at investment firm eToro, said it would be too early to gauge the impact of the rules, but they sounded "ominous."

"If they start shutting down exchanges, it won't kill bitcoin or affect its desirability... but it would seriously hamper the flow of funds," he added.